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The long-term search for an equilibrium on the Spanish rental market

09 Dec
2017

Automatic translation from Google translate:

The long-term search for an equilibrium on the Spanish rental market

We will not refer to tourist rentals or seasonal rentals -which will also be the subject of an article later- but we will talk in this paper only about “classic” rentals that constitute the homes of families. When we analyze the situation: it is so difficult to find a balanced solution that pleases all the players.

We have spent decades with a Law of Urban Leases that protected the tenants in such a way, that there were cases in which a 300m2 apartment on the Diagonal was enjoyed for 600 “constant” Pesetas ( about € 4 today) until the death of the tenant and beyond… if there were relatives living with the deceased. I remember desperate owners, forced to change the elevator, and whose rental income did not even cover maintenance.

Then came the ‘Decree Boyer’ in 1985, and thereafter the new law in 1994, and market rents of flats became a sort of ‘Far West’, for which the new tenants had to face free prices, meagre stays and the consequent pressures before the time of renewal.
It is clear that this situation, in years of economic boom, decisively favoured the real estate market, with mortgage loans that today constitute a headache we are experiencing.

But here we are: we do not know how to find the middle term of things, letting the law of the pendulum act like an elephant in a china shop.

Other solutions in foreign countries like Germany, Austria and Switzerland

Those of us who have seen a little of what goes on outside, find with astonishment that, for example, in Germany, Austria and Switzerland, it is only a minor part of the population that owns its housing: the wealthiest, owning something exclusive properties. Most of the population lives in flats or terraced houses whose owners are investment funds or pension funds.

If the housing ceases to be a speculative good (it seems that this is not going to be the case since there is already talk of another bubble) there would be security for the stability of the housing market. Which would avoid the distortions of unpayable mortgages we have been living in recent years.
Lately, we have seen significant increases in rents, where Barcelona and Madrid have marked record highs, so we find that former owners with unpayable mortgages are in a rental market with unpayable leases, however, at the same time, we have about 3.5 million empty homes.

A new system in Catalonia?

The Catalan government tried to impose a tax on vacant dwellings, which has been suspended by the Constitutional Court. They are now trying, together with the Barcelona City Council, to reduce abusive rents through tax credits and aid to landlords who fix more modest prices. Another measure welcomed by the Catalan government is a new price index that would be applied gradually and for which, in June 2017, 27 municipalities had been taken into account, representing almost 60% of the population of Catalonia.

It is a pioneering system in Spain that is inspired by the one that has ruled Berlin for years. According to the Generalitat itself, it is an indicator of public consultation with an informative nature that allows us to know an estimate of the average price per square meter of rent for a house located in an area and with characteristics defined by the person making the query. You can find more at the following link.

 

The important thing is that the rates are considered fair by both the tenants and the owners, a difficult task, as each one looks at the proposed house with its own glasses. And, unlike Germany and Austria, in which the majority of rental housing is from large specialised corporations, in Spain 97% of rental housing is in private hands, according to data from Solvia, which implies more diversity of opinions. Recently I wrote about the big projects planned by large corporations that may be interested in entering this dynamic, which would settle that percentage a bit, find the earlier paper here: The new “Phoenix”: the construction of homes reborns with force in Spain.

In our opinion, a stabilisation of the housing market would provide advantages for homeowners concerning the regularity of the leases’ payments and possibly a more accessible rental market for the tenants.
If this stabilisation can sometimes mean some sacrifice concerning income, this may be offset in the long run by this regularity, as there is nothing worse than a slope housing rented for months, and especially it should be complemented by tax credits and aid.
This system could even come to reduce the need to invest in social housing, so the paradox that aid might end bonuses and might mean savings for the Spanish state.

This article is written by one of our independent partners in Spain, Juan, who is one of our Legal partners in Catalonia. Check his profile in our team section.

Do you want to get in touch with him? Ask us for an introduction and benefit from the power of our network.

Juan

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